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On Whether the Size of Government Belongs in Economic Freedom Indices

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  • Ryan H. Murphy

Abstract

Jan Ott (2018) uses the concept of convergent validity to recommend that the size of government be removed from measures of economic freedom. While he assesses both the measure from the Heritage Foundation and the Economic Freedom of the World (EFW) measure, I focus on EFW, which is more significant in the academic sphere and with which I myself am associated. Ott’s article is in a line of research which suggests the size of government should be treated differently than other economic freedom data, because it behaves differently across countries. I criticize Ott (2018) while speaking also to this other literature. First, Ott’s primary finding is contingent on the sample used and contingent on an older version of the economic freedom data. Second, and more importantly, EFW is a formative construct, which means that its constituent dimensions are what define it. Third, were we to apply Ott’s methodology to other measures of institutions, we would reach conclusions that most observers would find untenable. Disaggregating size of government from the other dimensions of economic freedom may be useful for narrow questions, but removing the size of government simply inhibits our ability to properly test hypotheses concerning economic freedom.

Suggested Citation

  • Ryan H. Murphy, 2022. "On Whether the Size of Government Belongs in Economic Freedom Indices," Econ Journal Watch, Econ Journal Watch, vol. 19(1), pages 1-47–57, March.
    • Handle: RePEc:ejw:journl:v:19:y:2022:i:1:p:47-57
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    References listed on IDEAS

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    1. Jakob De Haan & Susanna Lundström & Jan‐Egbert Sturm, 2006. "Market‐oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, April.
    2. Jan Ott, 2018. "Measuring Economic Freedom: Better Without Size of Government," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(2), pages 479-498, January.
    3. Joshua C. Hall & Robert A. Lawson, 2014. "Economic Freedom Of The World: An Accounting Of The Literature," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 1-19, January.
    4. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-287, October.
    5. Heckelman, Jac C. & Stroup, Michael D., 2005. "A comparison of aggregation methods for measures of economic freedom," European Journal of Political Economy, Elsevier, vol. 21(4), pages 953-966, December.
    6. Jan–Egbert Sturm & Erik Leertouwer & Jakob de Haan, 2002. "Which Economic Freedoms Contribute to Growth? A Comment," Kyklos, Wiley Blackwell, vol. 55(3), pages 403-416, August.
    7. Martin Rode & Sebastian Coll, 2012. "Economic freedom and growth. Which policies matter the most?," Constitutional Political Economy, Springer, vol. 23(2), pages 95-133, June.
    8. Peltzman, Sam, 1980. "The Growth of Government," Working Papers 1, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    9. Bjørnskov, Christian, 2016. "Economic freedom and economic crises," European Journal of Political Economy, Elsevier, vol. 45(S), pages 11-23.
    10. James Gwartney & Randal Holcombe & Robert Lawson, 1998. "The Scope of Government and the Wealth of Nations," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 163-190, Fall.
    11. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-287, October.
    12. Steven B. Caudill & Fernando C. Zanella & Franklin G. Mixon, Jr., 2000. "Is Economic Freedom One Dimensional? A Factor Analysis of Some Common Measures of Economic Freedom," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(1), pages 17-40, June.
    13. Carlsson, Fredrik & Lundstrom, Susanna, 2002. "Economic Freedom and Growth: Decomposing the Effects," Public Choice, Springer, vol. 112(3-4), pages 335-344, September.
    14. repec:bla:kyklos:v:55:y:2002:i:3:p:403-16 is not listed on IDEAS
    15. Toby Huskinson & Robert Lawson, 2014. "Clusters of economic freedom," Applied Economics Letters, Taylor & Francis Journals, vol. 21(15), pages 1070-1074, October.
    16. Robert A. Lawson & Ryan Murphy & Benjamin Powell, 2020. "The Determinants Of Economic Freedom: A Survey," Contemporary Economic Policy, Western Economic Association International, vol. 38(4), pages 622-642, October.
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    Cited by:

    1. Ryan H. Murphy, 2025. "Social Repression and Variation within the Human Freedom Index," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 177(3), pages 1193-1212, April.
    2. Alvarez, Sean P. & Geloso, Vincent & Scheck, Macy, 2024. "Revisiting the relationship between economic freedom and development to account for statistical deception by autocratic regimes," European Journal of Political Economy, Elsevier, vol. 85(C).
    3. Ryan H. Murphy, 2023. "State capacity, economic freedom, and classical liberalism," Constitutional Political Economy, Springer, vol. 34(2), pages 165-187, June.

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    More about this item

    Keywords

    Economic freedom; size of government; validity; convergent validity;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General

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